Goldman Sachs, Morgan Stanley Raise S&P 500 Forecasts

Goldman Sachs Group Inc. expects U.S. economic growth to reach 3 percent in the first quarter and 2 percent in the second three months of the year. Photographer: Jin Lee/Bloomberg

March 18 (Bloomberg) -- The two biggest U.S. equity bears
in 2012 see the Standard & Poor’s 500 Index rising more than 12
percent this year to at least 1,600, as strong economic data
point to higher corporate earnings.

Goldman Sachs Group Inc.’s chief U.S. equity strategist,
David Kostin, raised his target today for the benchmark stocks
gauge by 3.2 percent to 1,625 from 1,575. Adam Parker of Morgan
Stanley boosted his 2013 estimate by 12 percent to 1,600 from
1,434. They join strategists at Deutsche Bank AG, Credit Suisse
Group AG and Jefferies Group LLC in increasing their targets for
U.S stocks in the last week.

“The 2013 U.S. equity market story is becoming one of
improving business activity accompanied by increased CEO
confidence,” Kostin wrote in a report. “Recent economic data
has been strong as employment growth, ISM surveys and retail
sales have all posted positive surprises. The ‘sequester’ has
begun, and the federal government is still functioning.”

The rally in U.S. equities has pushed bearish strategists
to capitulate in 2013 after being conservative last year, when
stock seers forecast the smallest gain in seven years for the
S&P 500. Kostin and Parker estimated the S&P 500 would fall in
2012 to 1,250 and 1,167, respectively, making them the two most
bearish strategists among the 14 surveyed by Bloomberg. The
equity index surged 13 percent to 1,426.19 in 2012.

The S&P 500 closed within two points of its all-time record
of 1,565.15 on March 14, as better-than-estimated retail sales
and jobless claims data boosted optimism in the world’s largest
economy. The data helped offset concerns over automatic federal
spending cuts that started March 1.

Manufacturing Data

On March 5, the Institute for Supply Management’s non-manufacturing index reading for February unexpectedly increased.
A week earlier, ISM factory data showed the fastest pace of
manufacturing since June 2011, as orders climbed the most in
almost two years.

The S&P 500 has surged 21 percent since its low last year
in June amid corporate earnings that have exceeded analysts’
estimates and stimulus measures by global central banks. The
gauge has added 8.8 percent this year. It slid 0.6 percent to
1,552.10 in New York today and would need to add 3.1 percent to
reach 1,600.

Following the latest upward revisions, the average
strategist forecast for the S&P 500 at the end of 2013 is 1,571,
data compiled by Bloomberg show. The figure has risen 2.3
percent since starting the year at 1,534.

Faster Growth

Kostin, the New York-based chief U.S. equity strategist at
Goldman, lifted his estimate for combined earnings by companies
in the S&P 500 this year by $1 to $108 a share. Goldman expects
U.S. economic growth to reach 3 percent in the first quarter and
2 percent in the second three months of the year, he said.

He also said financials stocks should outperform those from
other industries in 2013, citing faster economic growth, rising
interest rates and higher dividends and share buybacks.

Morgan’s Parker, who is based in New York, increased his
projection for S&P 500 profit to $103.20 from $98.71.

“We see improving fundamentals in the second half of the
year and into next year,” Parker said in today’s note. “A
number of things have been responsible for the recent multiple
expansion, but perhaps a major contributor was quantitative
easing, which encompasses Fed and ECB policy.”

Jefferies’ Sean Darby increased his target by 6.9 percent
to 1,673 on March 12, making him the most bullish strategist in
Bloomberg’s survey. The Hong Kong-based chief global equity
strategist said earnings will continue to surpass estimates and
investors will shift money to stocks from bonds.

Equity Strategists

Credit Suisse’s Andrew Garthwaite raised his target to
1,640 from 1,550, the second-highest in the survey. More
aggressive central bank actions and inflows into equities were
among the reasons the S&P 500 warranted a higher forecast, he
said in a March 15 note.

David Bianco, Deutsche Bank’s New York-based chief U.S.
equity strategist, raised his 2013 target to 1,625 from 1,600,
citing positive economic data in a March 16 note.

Wells Fargo & Co.’s Gina Martin Adams is the most bearish
strategist, projecting the S&P 500 will fall to 1,390. That
would require a 10 percent drop from today’s level.